The Hangzhou Huaguang Advanced Welding Materials Co.,Ltd. (SHSE:688379) share price has fared very poorly over the last month, falling by a substantial 26%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 27% in that time.

Even after such a large drop in price, there still wouldn't be many who think Hangzhou Huaguang Advanced Welding MaterialsLtd's price-to-sales (or "P/S") ratio of 0.9x is worth a mention when the median P/S in China's Metals and Mining industry is similar at about 1.1x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

How Hangzhou Huaguang Advanced Welding MaterialsLtd Has Been Performing

With revenue growth that's superior to most other companies of late, Hangzhou Huaguang Advanced Welding MaterialsLtd has been doing relatively well. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Is There Some Revenue Growth Forecasted For Hangzhou Huaguang Advanced Welding MaterialsLtd?

The only time you'd be comfortable seeing a P/S like Hangzhou Huaguang Advanced Welding MaterialsLtd's is when the company's growth is tracking the industry closely.

Taking a look back first, we see that the company grew revenue by an impressive 17% last year. The latest three year period has also seen an excellent 69% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 37% during the coming year according to the two analysts following the company. With the industry only predicted to deliver 16%, the company is positioned for a stronger revenue result.

With this information, we find it interesting that Hangzhou Huaguang Advanced Welding MaterialsLtd is trading at a fairly similar P/S compared to the industry. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Key Takeaway

With its share price dropping off a cliff, the P/S for Hangzhou Huaguang Advanced Welding MaterialsLtd looks to be in line with the rest of the Metals and Mining industry. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Despite enticing revenue growth figures that outpace the industry, Hangzhou Huaguang Advanced Welding MaterialsLtd's P/S isn't quite what we'd expect. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

Having said that, be aware Hangzhou Huaguang Advanced Welding MaterialsLtd is showing 2 warning signs in our investment analysis, you should know about.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.